How to Compare Robo Advisors and Choose the Best One

Updated February 5, 2021

Top Robo Advisors for 2021

The following lists the top five robo-advisors to consider. This list of robo-advisors was compiled according to low account minimums, management fees, and expense ratios. Investment options and customer reviews were also taken into consideration.

1. Betterment

Betterment lands at the top of our robo-advisors list because of their financial planning tools, low management fees, and $0 account minimum. Betterment also provides expert guidance and automated investing tools to help you reach your long-term financial goals.

2 .Wealthfront

Wealthfront offers low account minimums and free management on the first $5,000, making it a top contender for best robo-advisor service. With Wealthfront, you can take advantage of low exchange-traded fund (ETF) expense ratios, automatic rebalancing, and several account types to choose from.

3. Ellevest

Marketing to women, Ellevest has a goal-focused investment approach – with no account minimum. You can get started for just $1 per month with the option to cancel any time. The access to career coaching and financial planning makes this robo-advisor service a great option.

4. Blooom

Blooom offers the unique opportunity to receive advice and guidance on investing in a 401(k). They provide a free financial analysis and access to financial advisors to help you get on the right path for your investment needs. We also chose this robo-advisor service because of the zero account minimum and low annual fees.

5. Fidelity Go

Fidelity Go is a great option for a robo-advisor because it also offers a zero account minimum and management fees up to 0.35%. If you’re looking for a diversified portfolio with no investment-expense ratios, Fidelity Go is a top choice. As an added bonus, the company also has live humans overseeing their portfolios.


Robo Advisor Comparison: How Should You Choose a Robo Advisor?

Following are the top factors to consider when choosing a robo-advisor to manage your portfolio.

Determine the Best Type of Account for You

Most robo-advisors offer several options for account types. Review the options to choose the best type for you and your financial needs, including retirement and taxable accounts, IRAs, individual and joint accounts, trusts, and more.

Review the Minimum Investment Requirements

The minimum investment requirements for robo-advisors can range anywhere from $0 to $5,000. You’ll find that many fall on the low-end of this range.

Understand Your Risk Tolerance

Robo-advisors will provide you with an online survey to better understand your risk tolerance and asset allocation. For example, it may help determine whether you want to be more conservative or aggressive with your investment choices. 

The service’s algorithm will provide portfolio options based on your answers and will automatically invest your assets once a portfolio is chosen. It is important to understand the difference between a conservative and aggressive approach, then determine which best aligns with your financial goals before choosing any financial plan.

Know Your Investment Options

Robo-advisors usually build investment portfolios using low-cost, exchange-traded funds and index funds. These portfolios are baskets of investments pooled together to mirror the behavior of an index, like the Dow Jones Industrial Average or the S&P 500. When using an online financial planning service, you’ll pay the robo-advisor management fee along with the expense ratio (which is charged by the funds).


Robo Advisor Comparison Example: Wealthfront vs. Betterment

Below is a comparison table that lists the facts, features, and fees of the robo-advisors Wealthfront and Betterment. This framework can be used to compare many other robo-advisor companies.

Wealthfront vs Betterment


Robo Advisor Basics: What Are Robo Advisors?

Robo-advisors are financial planning services offered by brokerage firms to provide investment advice to investors at lower costs. They use a computerized algorithm to create and manage a customer’s portfolio based on several factors, including: financial goals, time horizon, and risk tolerance.

The services provided by robo-advisors can range from automatically investing assets and rebalancing to tax optimization. Many people have begun choosing robo-advisors due to their low fees and initial investment requirements, as well as the peace of mind that comes with the automated service. 

How Do Robo Advisors Work?

Robo-advisors use computer algorithms to provide financial advice based on the information gathered from customers via online surveys. Financial goals, time horizon, and risk tolerance preferences are examples of data that is collected on each survey.

They typically include the following services:

  • Automatic or interval rebalancing of your portfolio so it never strays from your desired allocation
  • Financial planning tools like calculators and knowledge center articles
  • Tax strategies for taxable accounts (e.g. tax-loss harvesting)

Are Robo Advisors Safe?

Robo-advisors are as safe as any other portfolio manager. They are required to follow strict financial guidelines that are regulated by the Financial Industry Regulatory Authority (FINRA) which oversees all financial institutions in the United States. 

There are no guarantees that the robo-advisor will perform as well as you hope or that the company will be around forever. There are, however, certain safeguards in place through a custodian bank which will protect your assets should the company go out of business. 


 Robo Advisors vs Financial Advisors: What’s the Difference?

Robo-advisors are online investment platforms. They create and maintain a financial plan using computerized algorithms. While some companies do provide assistance from a financial planning team, robo-advisors generally require little-to-no human supervision. 

Financial advisors and financial planners are licensed professionals who work in-person and  one-on-one with investors to help manage finances in several areas (e.g. college, estate planning). Some people are willing to pay the higher cost for a financial advisor because of the personal attention they receive.

Many companies now offer a hybrid option, meaning clients can have the personal attention of a designated financial advisor (though they would either meet over the phone or via video chat). There are lower fees associated with working with an online financial advisor – and possibly even lower fees associated with working with a robo-advisor.


Are Robo Advisors Worth It?

Determining whether a robo-advisor is worth using depends upon your financial goals and need for personalized financial advice. When it comes to low fees and convenience, automated services based on your financial goals, robo-advisors are the way to go. 

If your situation is more complex, you can hire a professional financial advisor to personally comb through your situation for areas of opportunity.

What Are Robo Advisor Returns?

Many robo-advisors haven’t been around long enough to provide a complete picture of performance. To get a clearer idea of overall investment performance, it’s best to look at returns going back five or more years. Anything fewer than five years tells very little regarding how it will withstand market volatility.

What Are Robo Advisor Costs?

To use a robo-advisor service, the funds will charge you management fees and expense ratios. Expense ratios can be as low as 0% – with the annual fee being a percentage of the investor’s portfolio. Some services will also charge for trade and transactions. To avoid hidden fees, be sure to look at the fine print for each company. If the benefit of low fees is important to you, be vigilant when selecting your robo-advisor.

How Do Robo Advisors Make Money?

Robo-advisors make money from the following fees passed on to the investors at their firm:

  • Account fees
  • Transaction fees
  • Management fees
  • Expense ratios
  • Cash deposits
  • Arbitrage

Frequently Asked Questions About Robo Advisors

What Are Online Financial Planning Services?

Online financial planning services provide a hybrid between a traditional financial advisor and a robo-advisor at a lower cost. Clients are able to work with a designated financial advisor (or a team of financial planners) that meet via either phone or video chat to discuss financial goals. Clients can expect the initial investment and monthly fees to increase with any additional services.

What Are the Benefits of Robo Advisors?

Many brokerage firms are competing for your business, meaning that fees are being driven lower. People who previously thought financial advice was outside of their budget are now able to get the assistance they need to reach their financial goals. 

While robo-advisors are not 100% tailored to each individual’s financial needs, their detailed questions – included with the financial planning software – allow you to update your preferences as your goals change.

Are Robo Advisors a Long Term Retirement Plan?

Robo-advisors can be used as part of your long-term retirement plan – there’s no plan that’s 100% “set it and forget it.” Whether you work with a traditional advisor, a robo-advisor, or choose your investments yourself, you’ll want to continue to check on your portfolio’s gains and losses to ensure they align with your financial goals.

For example, if you’re moving from the workforce into retirement, your investments will likely need to be adjusted, too. This can be done anytime with a robo-advisor (no matter what stage of life you are in), making it a convenient and sustainable long-term retirement plan. 

<